Following new provisions that came into force on 10 July, Carolyn Brown and Tamara Ludlow review the scope of the fixed-term employees regulations
'Both the Directive and its subsequent implementation through UK legislation were intended to increase employees' rights in situations where the fixed-term working benefited the employer substantially more than the employee':
A variety of business sectors have conventionally used fixed-term contracts because they prefer the flexibility associated with them. This benefit can extend to employees too, where they are not bound by the same period of notice as their permanent employee counterparts and - in the case of a fixed term contract with no break clause have the benefit of a guaranteed period of income.
The Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (the Regulations) implemented EC Directive 99170, The framework Directive on Fixed-Term Work (the Directive). This Directive is aimed at providing the same employment protection for those employees who work under fixed-term contracts that those on unlimited-term contracts enjoy.
Both the Directive and its subsequent implementation through UK legislation were intended to increase employees' rights 111 situations where the fixed-term working benefited the employer substantially more than the employee. In July, provisions of the Regulations triggered an automatic conversion of some fixed-term contracts into unlimited-term contacts 111 specific situations (see below).
This article is intended to provide a reminder of the purpose and scope of the relevant legislation and to cover the effect of the recent change. While those employees who relish the freedom a fixed-term contract provides may not welcome the intervention of the regulations in their contractual agreement, employers nevertheless need to act to alter their practices, and some existing agreements, to match the actual legal position.
Why use a fixed-term contract?
There are various circumstances and industry specific requirements that make a fixed-term contract attractive. Examples include:
· where the employer requires an employee to work only on a particular project - this is common in the construction industry, for example, when building a particular development;
· where seasonal contracts are required to cover additional demand or workload. Such contracts are common in the retail industry, for example during Christmas trading;
· where an employer requires maternity cover or sickness - absence cover (a requirement in any industry sector); and
where a project (and the wages of those undertaking the project) is funded by a specific and Iimited funding stream. This is common III the voluntary and public sectors; for research work in the academic world; or in the media, where it is commonplace for funding to be targeted to a particular programme or publication.
Limited-term contracts
Sections 95 and 136 of the Employment Rights Act 1996 (ERA) provide that the expiry of a 'limited-term' contract without renewal will amount to a dismissal for the purposes of unfair dismissal and redundancy. In essence, a limited-term contract is a fixed-term contract, as defined by the Regulations, but with one important difference: it also encompasses contracts that provide for an automatic termination when the employee has reached the normal retirement age.
Therefore, if employees are otherwise eligible to claim unfair dismissal or a redundancy payment in accordance with the usual criteria, the expiry of a fixed-term contract under the terms of that contract will not allow an employer necessarily to escape liability for unfair dismissal or making a statutory redundancy payment simply because the contract was limited in term.
In relation to redundancy, it is not justifiable on objective grounds to select someone for redundancy by reference to their fixed-term status. However, dismissing by reason of redundancy on the ground that the particular project has been completed for which the employee was recruited could be justified.
While these provisions protect fixed-term employees from unfair termination, they offer little comfort to those who may be experiencing difficulties during employment on account of their status as fixed-term employees.
The equality principle
Another purpose of the Regulations was to introduce the principle of equal treatment of those employed under fixed term contracts, when compared with their permanent (employee) counterparts. This was considered to be necessary given that many employers appeared to hold the view that fixed term employees could be excluded from contractual benefits and the facilities and opportunities enjoyed by permanent employees. There have been only a limited number of cases arising from the Regulations and it is therefore difficult to assess how successful they have been in achieving this aim. However, the fact that there is little case law may reflect the nature of the fixed-term employee workforce, rather than necessarily indicating the effectiveness of the Regulations.
Who is protected?
One important distinction is clear in the title: the Regulations are intended to protect employees and this protection does not extend to workers (see box on page 24). The Regulations also identify special classes of person who are protected, including Crown employees (Reg 13), the armed forces (Reg 14), certain Parliamentary staff (Regs 15 and 16) and police officers (Reg 17). There are exclusions. notably people on government training schemes (Reg 18), agency workers (Rcg 19) and apprentices (Reg 20).
What do the unfair treatment provisions say?
Fixed-term employees are protected from receiving less favourable treatment by reason of their fixed-term status compared with their permanent employee counterparts, unless the employer is able to objectively justify any such disparity of treatment (Reg 3(1) and 3(3))
Examples of less favourable treatment might be:
· failure to supply the same contractual and non-contractual benefits provided to permanent employees such as salary rates, bonuses, holiday entitlement, membership of pension schemes or other fringe benefit schemes and entitlements under enhanced redundancy schemes;
· failure to afford the same access to training and promotion;
· selection for redundancy on the basis of tile fixed-term employment status; and
imposition on fixed-term employees of more onerous terms and conditions, such as longer working hours.
Case law makes it clear that non renewal of a fixed-term contract will not of itself amount to less favourable treatment. In the case of The Department for Work and Pensions v Webley [2004L the Court of Appeal, overruling an earlier decision by the Employment Appeal Tribunal. found that the essence of a fixed-term contract is that it ends on the expiry of the fixed term and that the termination of such contracts by the simple passing of time could not constitute less favourable treatment.
Whether there has been less favourable treatment will be determined by comparison with a 'comparable permanent employee' and the use of the pro-rata principle, unless it is inappropriate (Reg 3(5)).
Comparators
The comparator for a fixed-term employee is narrowly defined as a permanent employee who is working for the same employer ill the same establishment doing the same or broadly similar
work (Reg 1 (2) and Reg 2(1)). This employee must be comparable and, if relevant to the job, their skills and qualifications must be taken into account. A comparator cannot be sourced from an associated employer or from a pool of former employees, or be hypothetical.
The pro-rata principle
The starting point must be that, where possible, the terms and conditions enjoyed by fixed-term and permanent employees should be the same - in other words, the employer should take a 'term-by-term' approach to ensuring parity. Where appropriate (and possible), the Regulations (Reg 3(5)) and the Department of Trade and Industry's 'Fixed-term work - guidance' (the guidance) make it clear that any contractual and non-contractual benefits, such as those that are offered on an annual basis, should also be offered on a pro-rata basis.
However there are some benefits that may be disproportionately costly if offered on a pro-rata basis. In this case the increased cost of providing a particular benefit may suffice as objective justification for not providing it to a fixed-term employee.
The guidance suggests that employers should consider providing other benefits where possible to try to achieve parity in treatment. In other words, they should take a 'package approach' by attempting to provide terms and conditions to fixed-term and permanent employees that have the same value overall. The Regulations (Reg 4) allow for this approach.
Objective justification
It may be that, despite attempts at achieving parity, there is a difference in treatment which disadvantages fixed term employees. Employers will be required to objectively justify such treatment. The guidance on the issue of justification states that employers should ask themselves whether there is a good reason for treating the employee less favourably. It continues that the needs and rights of the employee must be balanced against business objectives.
The guidance indicates that less favourable treatment will be justified objectively where an employer can show the treatment is:
· to achieve a legitimate objective (such as a genuine business objective);
· necessary to achieve that objective; and
· an appropriate way to achieve that objective.
Written statement
Fixed-term employees have the right to request a written statement from their employer of the reasons for any less favourable treatment (Reg 5). The request must be made in writing and the employer has 21 days in which to reply.
As with the questionnaire procedure in other areas of discrimination protection legislation, a failure to reply or an equivocal or evasive reply will allow a tribunal to draw adverse inferences about the employer's acts or omissions in any subsequent tribunal claim.
Protection from dismissal and detriment
A fixed-term worker can bring a claim for automatically unfair dismissal or for being subjected to a detriment if the reason or principal reason for the dismissal or detriment is that either they have asserted or intend to assert their rights under the Regulations, or the employer suspects or believes they have done or intend to do so (Reg 6).
There is no qualifying period of service to bring a claim for automatically unfair dismissal, nor is there an upper age limit.
What compensation is available?
The compensation for claims brought under the Regulations is unlimited. However, any award must be based on what is just and equitable and should be linked to the claimant's financial loss (Reg 7).
What changed on 10 July?
On 10 July 2006 the Regulations added a further level of protection for fixed-term employees who are employed on successive and consecutive fixed-term contracts.
With very limited exceptions, employees who have worked for one employer on successive (and consecutive) fixed-term contracts totalling four years have automatically become permanent employees (Reg 8).
This does not cover situations where there has been only one fixed-term contract. However, any employee currently in their first fixed-term contract (whatever its length) will automatically convert to permanent staff status on renewal of the contract provided that they have at least four years' service. The requirement for the contracts to have been successive and consecutive does not necessarily mean that a gap between contracts will have broken continuity and the usual rules on continuity of employment apply.
Objective justification
Employers will not be prevented from reissuing an employee with a fixed-term contract but, as with less favourable treatment, they will have to objectively justify such a choice. The guidance suggests the same three considerations (as set out above) apply.
Written statement of variation
Since the conversion is automatic, many employers and employees may have overlooked it. Ideally, employers should have written to the employees confirming the change in employment status and, where appropriate, changes to notice provisions. Section 4(1) of ERA obliges employers to issue statements of change within one month of a change materialising during the term of the contract, including changes in respect of a fixed term and notice provisions (ss](4) (g) and 1(4)(c) of the ERA respectively).
Assuming the terms and conditions of fixed-term employees are otherwise identical to those of comparable permanent employees, no other changes are necessary. However, in situations where benefits or other terms and conditions may lead to less favourable treatment, employers will have to ensure that those terms are changed in line with the employee's new permanent status.
If the employee requests a written statement of variation, as they are entitled to do, employers must respond within 21 days (Reg 9).
Higher-value claims?
Employers must continue to ensure their contracts comply with the Regulations. The provisions implemented in July 2006 may also fuel an increase in higher-value claims relating to longer fixed-term arrangements which have acquired permanency by means of the operation of the legislation.